For Singaporean firms, good governance can solve the paradox of legacy

SINGAPORE’S multitude of family firms have long been crucial to the country’s economic well-being. While most of these firms are small and medium-sized enterprises (SMEs), they have a presence in many industries – including hospitality, construction and manufacturing – and play an essential role as employers.

By their nature, family firms tend to provide stability. Typically, they hold a long-term view and, to preserve legacy, focus on building businesses that will last generations, with this sometimes taking priority over short-term profits.

But, as past winners of the Enterprise 50 (E50) Awards have shown, these elements need not be mutually exclusive: Some have balanced business and family interests. Past winners have also shown that being a family business does not preclude innovation.

Legacy, though, can prove paradoxical. As a source of identity, it can be an asset. It can become a liability, however, if the family firm remains entrenched in tradition and stands in the way of innovation, change and agility in future generations. That is the paradox.

Balancing what at times can be conflicting business and family interests can be a challenge.

The solution is for family firms to establish robust governance structures. When done right, these will help to address potential conflicts, safeguard their legacy and position them as resilient contenders for the future. In short, good governance structures ensure that firms honour their past and can prepare strategically for innovation and sustainable growth.

Overcoming the paradox

Good governance is foundational for any successful, sustainable and digitally transformed business. Indeed, a 2023 global study by KPMG found that highly structured governance was one of eight key factors driving high levels of sustainability and digitalisation.

Positively, family firms know this. However, although research shows that 90 per cent say that governance structures are important, it also highlights that many can do better. Often, they are held back by a lack of time, expertise and capital.

Good governance structures can help family firms overcome the legacy paradox, and ensure they are not stuck in the past. Instead, these structures ensure they can look to the future, embrace change and – as the winners of E50 Award have shown – be innovative and agile.

SEE ALSO

E50: By the numbers

Celebrating 30 Years of Enterprise 50: Honouring Singapore’s resilient entrepreneurs and their vision for the future

How Singapore’s private firms can look abroad to grow

This starts with creating formalised structures, such as a well-defined board. While many family firms lack this, it is essential for effective oversight and strategic planning, and helps by creating defined processes and accountability lines that streamline decision-making informed by expertise. This helps SMEs to seize opportunities more quickly without compromising due diligence, overcome the costliness that inefficient decision-making inflicts on many, and stay innovative.

Next, is to implement comprehensive risk-management frameworks. These are crucial because SMEs’ limited resources and less-sophisticated risk-management frameworks make them more vulnerable to financial, operational and reputational risks.

Having the right structures helps them proactively identify, assess and mitigate potential threats by, for instance, mapping financial risk controls, assessing supply chain risks and planning the right responses for crises. SMEs stay agile and build the ability to handle unexpected challenges by embedding suitable processes into their operations.

Good governance, then, creates a structured, transparent environment where trust and accountability can thrive, and – for SMEs in particular – acts as a strategic enabler that facilitates growth, enhances resilience and protects their reputation.

Additionally, it is valuable in risk management (where measures such as internal controls, performance metrics and standardised procedures can minimise operational disruption), and boosts financial transparency and regulatory compliance – even as aspects such as data protection, labour laws and environmental standards are becoming increasingly important. In short, it helps to position SMEs for the future.

Family matters: From conflict-resolution to succession planning

Another goal should be to create a conflict-resolution framework. The need is clear: Almost one-fifth of non-listed family firms say a major cause of conflict relates to the competence of family members who work at the business, while about one-third say there is no formal process to resolve conflicts.

While every family has its own approach to managing interrelations, a formal procedure professionalises those unofficial or unspoken but accepted norms by making the implicit explicit.

This creates clarity, transparency and organised accountability in the day-to-day running of a business and its long-term strategic objectives. It also removes emotion from decision-making, ensuring that decisions made are in line with the firm’s objectives.

A robust framework can also help to resolve other bugbears, particularly ownership issues and – of increasing importance – succession planning, which family firms often overlook, and which can undermine continuity and stability.

Here, good governance requires leaders to understand that succession planning does not mean just preserving traditions. It should also ensure that the firm’s structures in areas such as talent and strategy give it the tools to be future-ready and meet the challenges ahead.

In some cases, this might require relinquishing some control over decision-making. It might also involve recruiting external professionals to help tackle new trends and challenges, or hiring younger talent from inside or outside the family to drive expansion into new markets.

Looking outside the family can also help firms prepare for a future in which sustainability and technology will be more important – no small consideration given that industry research shows just 29 per cent of those in Singapore say they have strong digital capabilities, while only 35 per cent have developed a sustainability strategy.

Dealing successfully with these trends will increasingly affect how well family firms continue to build their legacies, which underscores the importance of looking elsewhere for talent.

Laying the groundwork to realise the value of legacy

As family businesses grow in size and complexity, awareness of the elements that constitute good governance is becoming increasingly important. Leaders of family businesses need to realise that legacies cannot be viewed through the lens of the past, but must be seen as a stepping stone for future-oriented growth.

Importantly, if implemented well, a robust governance framework can also act as a pre-emptive conflict-mitigation strategy by ensuring individuals can fall back on the family’s shared values for guidance, and stay focused on their collective goals without risking the loss of a cherished Singapore brand.

The contributor is partner, head of private enterprise, KPMG, in Singapore